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2018 (8) TMI 1192 - AT - Income TaxTransfer pricing - arm’s length price (ALP) adjustment - notional interest granted on loan - Article 11(2) of the India-Finland Double Tax Avoidance Agreement (DTAA) - benchmarking the transaction at SBI Prime Lending Rate and not LIBOR - Held that:- Article 9 is attracted in this case. The transfer prising adjustment on account of interest is to be taxed by including the same in the profits of the assessee as it is not accrued by reason of conditions made and imposed between the Associate Enterprises. - Article 11, does not apply, as no interest accrues or arises in this case and the question of ‘payment’ of such interest simply does not arise. What is sought to be taxed is a Transfer Pricing adjustment which is permitted under Article 9 which talks about accrual and not payment. - In this case there is no obligation to pay interest. The learned council for the assessee projects a scenario which would never ever arise in the facts of this case and claims that, interest can be taxed only on payment, in view of Article 11. Such an argument is flawed. - Decided against the assessee. Regarding benchmarking the transaction - Held that:- The loan in question in this case has been given in US Dollars. Though the loan has been consumed in India, the repayment has to be made in US Dollars. - LIBOR has to be applied while benchmarking the international transaction in question. In view of the above discussion, this issue is decided in favour of the assessee.
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